2. Real wages, nominal wages, and unexpected changes in the price level Susan currenyr earns a V wage of $12.00 per hour; in other words, the amount of her paycheck each week is $12.00 per hour times the number of hours she works. Suppose the pn'ce of apple juice is $2.40 per gallon; in this case, Susan's V wage, in terms of the amount of apple juice she can buy with her paycheck, is E gallons of apple juice per hour. when workers and rms negoate compensation packages, they have expectaons about the price level (and changes in the price level) and agree on a V wage with those expectations in mind. If the price level turns out to be higher than expected, a worker's V wage is 7 than both the worker and employer expected when they agreed to the wage. Susan and her employer both expected ination to be 4% between 2012 and 2013, so they agreed, in a two-year contract, that she would earn $12.00 per hour in 2012 and $12.43 per hour in 2013. However, suppose ination between 2012 and 2013 actually turned out to be 5%, not 4%. For example, suppose the price of applejuice rose from $2.40 per gallon to $2.52 per gallon. This means that between 2012 and 2013, Susan's nominal wage V by , and her real wage V by approximately 7 . 1Ii'ii'hen workers and rms negotiate compensation packages, they have expectations about the price level (and changes in the price level) and agree on a v wage with those expectations in mind. If the price level turns out to be higher than expected, a worker's v wage is 7 than both the worker and employer expected when they agreed to the wage. Susa increased Hover both expected ination to be 4% between 2012 and 2013, so theyr agreed, in a twoyear contract, that she would earn $12.0 d d 2012 and $12.43 per hour in 2013. However, suppose ination between 2012 and 2013 actually.r turned out to be 5%, not 4%. For ecrease exam he price of applejuice rose from $2.40 per gallon to $2.52 per gallon. This means that between 2012 and 2013, Susan's nominal wage v by - and her real wage v by approximater v . Susan and her employer both expected ination to be 4 $12.00 per hour in 2012 and $12.43 per hour in 2013. ose ination between 2012 and 2013 actually turned out to be 5%, not 4%. For increased 12 and 2013, so they agreed, in a two-year contract, that she would earn example, suppose the price of applejuice rose from $2.- In $2.52 per gallon. This means that between 2012 and 2013, Susan's nominal wage V by , and her real wage V by approximately 7 . Susan currendy earns a V wage of $12.00 per hour; in other words, the amount of her paycheck each week is $12.00 per hour times the number of hours she works. Suppose the price of apple juice is $2.40 per gallon; in this case, Susan's V wage, in tenns of the amount of apple juice she can buyr with her paycheck, is E gallons of apple juice per hour. l-l aE When workers and lirrns negoate compensation packages, they have expectaons about t level (and changes in the price level) and agree on a v wage with these expectations in mind. If the price level turns out to be hig expected, a worker's v wage is v than both the worker and employer expected when theyr agreed to the wage. Susan and her employer both expected ination to be 4% between 2012 and 2013, so they $12.00 per hour in 2012 and $12.43 per hour in 2013. However, suppose ination between in a two-year contract, that she would earn d 2013 actually turned out to be 5%, not 4%. For example, suppose the price of applejuice rose from $2.40 per gallon to $2.52 per gallon. s that between 2012 and 2013, Susan's nominal wage v by - and her real wage v by approximately v